(Source: RockPaperShotgun)
In America today the law implies that it is illegal to use devices you legally own -- but that could soon change

Today a pair of bills sits before the 113th Session of the U.S. House and U.S. Senate -- H.R. 1123 (sponsor: Rep. Robert William "Bob" Goodlatte (R-Virg.)) and S.517 (sponsor: Sen. Patrick Joseph Leahy (D-Verm.)).  These bills could soon decriminalize the process of citizens unlocking products they legally own.  They could do that if, that is, the Republican-controlled House and the Democratic-controlled Senate can set aside their supposed ideological differences and put the American citizens first.
I. Among Savages, Infancy is Perpetual
The bills both have the same name "The Unlocking Consumer Choice and Wireless Competition Act".  And they're nearly the same. But one key difference between these virtually identical pieces of legislation is keeping them off the President's desk -- and keeping American citizens hanging.
The divide between the House and Senate stems from a familiar root -- money.  But after a long year-and-a-half drafting the bill and arguing, public and industry patience alike is wearing thin.  Both sides of the controversial issue deserve an answer; they deserve Congress to fix the mess it made 16 years ago.
locked smartphone
[Image Source: PC World]

Late Spanish essayist George Santayana once wrote:

Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it.

His words have been paraphrased into a popular aphorism -- those who do not learn from the past are doomed to repeat it.
It's hard to find a more applicable phrase to Congress's current conundrum about smartphone unlocking.  After all it was a compromise on two nearly identical bills that created this protracted uncertainty 16 years ago, so it would seem only fitting that Congress should have to relive its history.
II. Digital Rights Management (DRM) -- the Start
The year was 1996 and President William Jefferson "Bill" Clinton (D) was looking for a way to win a second term.  His platform focused heavily on embracing technology and working to modernize the U.S. legal code, which had long since fallen sadly behind the ever-driving pace of progress.
They say that sometimes bad things are born of good intentions.  Such was the case of the Digital Millennium Copyright Act (DMCA).
The movement to write what became the DMCA began at the World Intellectual Property Organization (WIPO), which in 1996 was gearing up for a much belated attempt to revise copyright law to deal with thorny digital age issues such as piracy.
This was three years before Napster and five years before The Pirate Bay.  But the phonographic (music) and video (TV/movie) industry seemed all too aware of the coming storm.  They watched the computer software industry grapple through the 1980s and early 1990s with the growing issue of piracy and responding with nascent attempts at digital rights management (DRM).

DRM -- no one admitted
[Image Source: Sodahead]

The U.S. -- as a newcomer to the WIPO -- was eager to lead this discussion.  The U.S. had joined the WIPO just seven years prior, ending a century-long holdout against the Berne Convention -- a set of copyright principles that had expanded the rights of artists in Europe.
In 1989 the 100th U.S. Congress passed the Berne Convention Implementation Act of 1988 (H.R. 4262).  President Clinton’s predecessor, President George Herbert Walker Bush (R), signed it into law.  The Implementation Act settled the long-standing criticisms of the Berne Convention's overreach by trimming back so-called "moral protections".
III. The U.S. was Built on a Tradition of Pirating Foreign Works
Many are unaware that America's rich tradition of piracy.  
Inspired by the UK's 1709 Statute of Anne, the Founding Fathers embraced a vision of piracy limited by nationalism.  Their platform protected their citizens' creations, but the U.S. government coolly refusing to extend similar protections to foreigners. Under the Copyright Act of 1790 -- signed into law by President George Washington himself -- the 2nd section of Congress ruled that only U.S. citizens were eligible for intellectual property protections.  
For Americans, though, the Copyright Act allowed for two 14-year terms (28 years, maximum) of rights protection.  That was viewed by many as a pretty attractive deal, compared to the UK's policy of only offering a single 21-year term of protection.

Copyright Act
The Copyright Act of 1790 [Image Source: Wikimedia Commons]

Thus the U.S. for its first century of existence operated much like China does today -- willfully condoning its entrepreneurs and industrialists willfully stealing the work of international authors, artists, and inventors' with nary a red penny of compensation.  Authors like Charles Dickens were best sellers in the U.S., but saw little income from their success in this land of limited piracy.
Of course the U.S. was not alone in its legitimacy of piracy as a protectionist/nationalist construct.  England and much of Europe had similar laws in place at the time.
One place where U.S. intellectual property did initially fall short of its peers, though, was protecting artistic works.  Musicians had to register their work as "books" until -- after heavy lobbying by Noah Webster -- 21st Congress made its first revision to copyright law in America, the Copyright Act of 1831.  The 33rd Congress passed the 1856 Public Performance Amendment, a revision that added protections for plays. A much larger legal effort known as the 1870 Revision was passed by the 41st Congress adding protections for "works of fine art".
Of course the U.S. deserved credit for being relatively proactive at protecting some new forms of creative expression pioneered by its citizens.  For example, the 38th Congress passed The 1865 Photography and Deposit Amendments offering one of the world's first protections for photographic work.  It was one of the final Congressional works to be signed into law by President Abraham Lincoln (R) before his assassination.

The Piracy Publisher
A piece in the American satire/humor magazine Puck in 1886 -- "The Pirate Publisher—An International Burlesque that has the Longest Run on Record" -- mocks America and Europe's practice of pirate foreign works. [Image Source: Wikimedia Commons]

Nonetheless, foreigners were victimized by piracy for-profit in the U.S. until the 51st session of Congress passed The 1891 International Copyright Act, also known as the Chace Act.  And even then it was relatively analogous to the limited protections China offers America today.  Much like China, the law required foreign rights holders to partner with American publishers if they wanted to protect rights to their books in the U.S.  Those who refused to comply with the local laws were punished by allowing the public to pirate their work.  The policy put U.S. manufacturing first and foreign rights holders a distant second.
Meanwhile in 1884, the foreign community was already embracing a much strong spirit of mutually respectful international patent law -- the Berne Convention.
IV. The WIPO Treaties of 1996 -- a Decent Start
In 1992 China signed on to the Berne Convention.  The American influence was paying off.  American rights holders pushed the Clinton administration to act proactively in supporting the WIPO to strength digital rights protections, a key growth sector of the American economy.
Two measures -- the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT) -- were drafted.  Both contained the same language prohibiting breaking or facilitating the breaking of DRM for piracy purposes.  The rules stated:

(1) Contracting Parties shall provide adequate and effective legal remedies against any person knowingly performing any of the following acts knowing, or with respect to civil remedies having reasonable grounds to know, that it will induce, enable, facilitate or conceal an infringement of any right covered by this Treaty or the Berne Convention:

(i) to remove or alter any electronic rights management information without authority;

(ii) to distribute, import for distribution, broadcast or communicate to the public, without authority, works or copies of works knowing that electronic rights management information has been removed or altered without authority.

(2) As used in this Article, “rights management information” means information which identifies the work, the author of the work, the owner of any right in the work, or information about the terms and conditions of use of the work, and any numbers or codes that represent such information, when any of these items of information is attached to a copy of a work or appears in connection with the communication of a work to the public.

The bills were relatively overlapping, but the WPPT -- as the name suggests -- covered more explicitly performance art and phonographs (CDs, records, tapes, etc.), while the WCT covered computer code and digital art.
To its credit, the WIPO did a relatively good job of balancing the need to compensate rights holders against the need for free trade, personal freedoms, and scholarships.  At times it set very positive precedents.

Fair use
The WIPO's 1996 treaties included safe harbor and fair use exemptions (or allowed member states to enact such exemptions). [Image Source:]

One example is in the green text above.  The treaty made a clear distinction between facilitating copyright infringement in an unwitting manner and willfully participating in it.  This would eventually give rise to the concept of fair harbor, a principle that in most nations/regions protects internet service providers from being charged or fined for infringements they were unaware of.
Another example of a relatively reasonable compromise is found on the topic of rentals, the WCT states:

(1) Authors of

(i) computer programs;

(ii) cinematographic works; and

(iii) works embodied in phonograms, as determined in the national law of Contracting Parties,

shall enjoy the exclusive right of authorizing commercial rental to the public of the originals or copies of their works.

(2) Paragraph (1) shall not apply

(i) in the case of computer programs, where the program itself is not the essential object of the rental; and

(ii) in the case of cinematographic works, unless such commercial rental has led to widespread copying of such works materially impairing the exclusive right of reproduction.

(3) Notwithstanding the provisions of paragraph (1), a Contracting Party that, on April 15, 1994, had and continues to have in force a system of equitable remuneration of authors for the rental of copies of their works embodied in phonograms may maintain that system provided that the commercial rental of works embodied in phonograms is not giving rise to the material impairment of the exclusive right of reproduction of authors

By only protecting commercial uses, the WIPO helped to formulate the fledging idea of protecting noncommercial "fair use" for private enjoyment or academic research.  Furthermore, limitations on commercial rental of video were defined.
V. Flaws in the WIPO Treaties
Both WIPO treaties shared three central flaws, though:
  1. They spent much time defining content creator rights, but little effort on defining customer rights.
  2. When they did offer members the opportunity to make common sense exceptions, they often did so ambiguously, leaving the door open for arbitrary interpretations.
  3. Some articles in the treaties were ambiguous to the point of basically becoming meaningless.
An example of the ambiguity issue can be found in the discussion of "first sale" rights.  

While the concept of "first sale" rights may not immediately ring a bell with U.S. consumers, the issue was at the heart of the recent Microsoft Corp. (MSFT) Xbox One DRM scandal, where initially the company looked to make used games unplayable outside a closed used game resale system in which it controlled the second sale, third sale, and so on.  The plan was not only questionable from a consumer relations standpoint -- it was possibly illegal, as traditionally only the right of first sale was protected in the U.S., with some rare exceptions.  Microsoft eventually abandoned course on those plans, after facing massive backlash.
Xbox One
Right of first sale was at the crux of the Xbox One used game DRM debate.

Both treaties left the issue of limiting later sales (i.e. preventing customers from reselling items they fully paid for) up to member states, writing:

Nothing in this Treaty shall affect the freedom of Contracting Parties to determine the conditions, if any, under which the exhaustion of the right in paragraph (1) applies after the first sale or other transfer of ownership of the original or a copy of the work with the authorization of the author.

Hence the WCT and WPPT were a fairly good start, but their ambiguity perhaps foreshadowed the problems with punitive copyright law enforcement in the U.S. that were to come.
VI. DMCA: "[Making] a Mockery of Our Constitution"
If the WIPO treaties were a mixed bag, what would come next in the U.S. was much worse.
It is a common myth that the DMCA passed through quietly, with no opposition in Congress.  In July 1997 the WIPO was put up for discussion as "WIPO Copyright Treaties Implementation Act" (H.R. 2281) and entered into a lengthy and rancorous debate that would last nearly a year in the Republican-controlled 105th Congress.
In early 1998 a pair of U.S. Congressmen in the 105th Congress -- former television journalist-turned-member of the U.S. House, Rep. Scott L. Klug (R-Wisc.) and Rep. Frederick Carlyle "Rick" Boucher (D-Virg.) -- tacked on language to H.R. 2281 voicing strong objections to its content and a stern warning to Congress of what would come to pass if they passed the bill.

Rep. Klug and Rep. Boucher
Rep. Klug (R-Wisc.) and Rep. Boucher (D-Virg.) fought to try to install strong fair use provisions in the DMCA.
[Image Source: C-SPAN]

The warning appears relatively prophetic in retrospect.  In it, they write:

In its original version, H.R. 2281 contained a provision that would have made it unlawful to circumvent technological protection measures that effectively control access to a work, for any reason. In other words, the bill, if passed unchanged, would have given copyright owners the legislative muscle to "lock up" their works in perpetuity—unless each and every one of us separately negotiated for access. In short, this provision converted an unobstructed marketplace that tolerates ‘‘free’’ access in some circumstances to a "pay-per-access" system, no exceptions permitted.

In our opinion, this not only stands copyright law on its head, it makes a mockery of our Constitution. Article I, Section 8, Clause 8 is very clear in its directive: "The Congress shall have Power * * * To Promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writing and Discoveries." (emphasis added). Congress has limited these rights both in terms of scope and duration. 

The anti-circumvention language of H.R. 2281, even as amended, bootstraps the limited monopoly into a perpetual right. It also fundamentally alters the balance that has been carefully struck in 200 years of copyright case law, by making the private incentive of content owners the paramount consideration—at the expense of research, scholarship, education, literary or political commentary, indeed, the future viability of information in the public domain. In so doing, this legislation goes well beyond the rights contemplated for copyright owners in the Constitution.

In other words, Reps. Klug and Boucher warned that by making circumvention illegal, Congress was granting rights owners in effect copyrights of unlimited terms (as if all copies of the work were protected by DRM, it would be illegal to get access to the work -- even after the copyright expired -- if the DRM prevented the user from doing so).
VII. DMCA -- Unfair on Fair Use
The Reps. aptly pointed out that the bill's worst language lay with regards to its treatment of digitally protected works.  In the non-digital domain where no equivalent of DRM exists for a widely traded and reproduced work, the bill included strong "fair use" protections, which allowed academics, artists, and media commentators from to study and reuse copyright material free of charge, as long as they offered proper attribution.  
The fair use protections for DRM-protected works were very limited to a handful of cases -- reverse engineering for interoperability purposes; for encryption research; for school/library use; and protecting personal information that might be gathered by DRM-protected software.
Furthermore, the bill went well beyond what the WIPO treaties had done.  It appeared to make illegal not only DRM circumvention for the purpose of infringement (banned by the WIPO), but also DRM circumvention for typically legal forms of personal use of a product you legally own (e.g. using your smartphone on a new carrier).
Specific the bill stated:

No person shall circumvent a technological measure that effectively controls access to a work protected under this title. The prohibition contained in the preceding sentence shall take effect at the end of the 2-year period beginning on the date of the enactment of this chapter... 

No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that -- is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access to a work protected under this title...

As used in this subsection-- to 'circumvent a technological measure' means to descramble a scrambled work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove, deactivate, or impair a technological measure, without the authority of the copyright owner; and  a technological measure 'effectively controls access to a work' if the measure, in the ordinary course of its operation, requires the application of information, or a process or a treatment, with the authority of the copyright owner, to gain access to the work.

In other words, circumventing DRM became a crime, as did providing technology to facilitate that.  This, in effect, criminalized making backup copies of DRM-protected content and removing region restrictions to content (e.g. installing modchips on consoles).

DRM web
The DMCA allowed a review process to formulate exemptions to DRM, but threatened to cripple digital fair use if such exemptions were not posthumously granted. [Image Source: iStock Photo]

Despite their best efforts, the pair was only able to get a subtle tweak to the bill's language.  Rather than add strong fair use protections, anti-fair use members of Congess effectively settled with Rep. Klug by agreeing to shelve the debate.  The final bill stated:

(C) During the 2-year period described in subparagraph (A), and during each succeeding 3-year period, the Librarian of Congress, upon the recommendation of the Register of Copyrights, who shall consult with the Assistant Secretary for Communications and Information of the Department of Commerce and report and comment on his or her views in making such recommendation, shall make the determination in a rulemaking proceeding on the record for purposes of subparagraph (B) of whether persons who are users of a copyrighted work are, or are likely to be in the succeeding 3-year period, adversely affected by the prohibition under subparagraph (A) in their ability to make noninfringing uses under this title of a particular class of copyrighted works. In conducting such rulemaking, the Librarian shall examine--
  (i) the availability for use of copyrighted works;
  (ii) the availability for use of works for nonprofit archival, preservation, and educational purposes;
  (iii) the impact that the prohibition on the circumvention of technological measures applied to copyrighted works has on criticism, comment, news reporting, teaching, scholarship, or research;
  (iv) the effect of circumvention of technological measures on the market for or value of copyrighted works; and
  (v) such other factors as the Librarian considers appropriate.
(D) The Librarian shall publish any class of copyrighted works for which the Librarian has determined, pursuant to the rulemaking conducted under subparagraph (C), that noninfringing uses by persons who are users of a copyrighted work are, or are likely to be, adversely affected, and the prohibition contained in subparagraph (A) shall not apply to such users with respect to such class of works for the ensuing 3-year period.

In other words, it was up to the U.S. Library of Congress (LoC) and the U.S. Department of Commerce to every three years (2000, 2003, 2006, 2009, 2012, etc.) engage in a repetitive process of posthumous legislation of some the most critical powers of the bill.  
This ambiguous mandate not only left citizens vulnerable to what exemptions might be made or not made, it left the opinions of the LoC vulnerable in court.  On the other hand, it spared the public from the appalling commercial and social consequences that could have happened, had the DMCA been made truly zero-tolerance, as the U.S. Senate version (S.2037) sought to make it.  
The stricter S.2037 had passed nearly unanimously; a single U.S. Senator -- Sen. Judd Gregg (R-N.H.) -- did not vote leaving the vote 99-0 in favor of that version.  The Senate was relatively hell-bent on not leaving the right to make exemptions in the LoC.  But eventually they backed down and a compromise was struck.
Ultimately this compromise represented the best and worst parts of the DMCA -- leaving the future ambiguous, but leaving hope still for fair use.  A compromise got Congress in this mess, but it also gave Congress some of the first tools to fix it.
VIII. Wrangling an Unruly Law
The DMCA has led to many unfortunate and perhaps unforeseen consequences.  One continual problem has been the issue of abusive website takedowns.  
Google Inc.'s (GOOG) YouTube famously was targeted by a lawsuit by Viacom, Inc. (VIAB)  -- a competitor of YouTube's who claimed the Google service was carrying infringed clips of its TV shows.  During the trial it was revealed that Viacom employees had uploaded much of the content themselves in an apparent effort to frame Google.  The revelation led to Google winning the case.
Other smaller sites weren't so lucky and struggled to appeal takedown notices from phony infringement claims.  These notices -- typically filed by a rival site or an enemy of the site owner -- used the automated takedown mechanisms internet service providers (ISPs) were forced to implement in exchange for safe harbor protections.  In other cases fake takedown requests were issued as a political activism tactic.

DMCA cat
[Image Source: Error Access Denied]

Aside from the issue of phony infringement claims and damage to legitimate businesses, the other major repercussions mostly involve DRM issues.  In many cases big media firms have taken to charging large fees to replace scratched music CDs, PC game CDs/DVDs, or movie DVDs, fees that exploit the fact that it's difficult (and legally tricky) to make a backup copy of a DRM-protected work.  In some courses rights holders have even looked to force the user simply to buy a new copy.  
Such demands have alarmingly held up in court.  While users making backup copies of content they legally own (even including removing DRM) has yet to result in any prosecution, content holders have successfully prosecuted those who offer software for removing CD or DVD content protections arguing that the consumer has no right to a backup copy.  Without the access to tools to remove DRM, consumers have suffered.
But some big media lawyers claim that suffering is healthy.
Jennifer Pariser, the head of litigation for Sony BMG -- the same company that installed those malicious rootkits on users computers -- stated in the 2007 RIAA lawsuit against working mom Jammie Thomas:

When an individual makes a copy of a song [he legal owns] for [his own backup purposes], I suppose we can say he stole a song.  "[Making] a copy" is just a nice way of saying 'steals just one copy'.

Similar arguments have been made by cellular networks regarding smartphone unlocking.
IX. The War Over the Lock
In 2006 the U.S. Library of Congress ordered [PDF] that smartphone unlocking should be made legal, as it was necessary to allow users to make full use of devices they legally paid for.  It wrote:

The underlying activity sought to be performed by the owner of the handset is to allow the handset to do what it was manufactured to do—lawfully connect to any carrier.  This is a noninfringing activity by the user... The purpose of the software lock appears to be limited to restricting the owner's use of the mobile handset to support a business model, rather than to protect access to a copyrighted work itself.

That opened the door both to third-party tools to unlock and for customers to sue to unlock their devices.  But carriers and phone OEMs fought the order, which they viewed as a threat to their profits. In a more controversial turn, the same rulemaking session declined exemptions on DVD ripping to portable media players (PMPs) of content the user legally owned.
Perhaps the most vigorous proponents of locking were Apple, Inc. (AAPL) and AT&T, Inc.'s (T).  In 2007 AT&T paid Apple substantially more than the cost of an unlocked handset in order to obtain exclusive access to the original iPhone, an exclusivity agreement that stood for several years.
If a user left AT&T the contract (another legal barrier to unlocking) would lead to early termination fees.  But such fees would typically only cover the cost of an unlocked handset -- not the inflated price that AT&T was paying.  On the flip side if AT&T could keep the customer locked into its network for 2 or more years, they could ultimately turn a healthy profit on the device.

iPhone unlock
Crafty users devised a number of ways around Apple's DRM -- but such techniques might be criminal were it not for LoC exemptions. [Image Source: Engadget]

Apple colluded in this plan by putting strong digital rights management technology into iOS, technology that prevented unlocking.  To unlock a device, users typically first had to find flaws in iOS which allowed it to be jailbroken, then load a modified version of the iOS firmware with the carrier restrictions removed in order to unlock it.
Only weeks after the release of the original iPhone in 2007, a software unlocking method was devised called iPhoneSimfree.  Weeks later then-teen hacker George "GeoHot" Hotz managed to jailbreak his iPhone using flaws in its communications protocol, providing an even stronger second route to unlocking (via a full jailbreak).  Some third-party tools -- both free and paid -- soon thereafter began to pop up allowing users to flee AT&T to T-Mobile U.S., Inc. (TMUS).  Apple responded by patching the routes that allowed these unlocks, and -- at times -- by suing those who sold unlocking tools.
X. 2009 -- a Final Victory for the Unlocker?
In 2009 AT&T and Apple fought vigorously to overturn the LoC decision to allow unlocking.  They argued that unlocking supported terrorism and drug crime -- perhaps a rather hyperbolic claim.  (Sony Corp. (TYO:6758) would later parrot this claim in its fight against PlayStation 3 jailbreakers.)

Team America terrorist
Apple claimed that smartphone unlocking supports terrorism, before later softening its stance on the issue. [Image Source: Paramount Pictures]

In one particularly heated late-night flame war, late Apple CEO and cofounder Steven P. Jobs asserted that Apple's motives behind locking and other seemingly anti-consumer tactics were "pure", writing:

You are so misinformed... You're believing a lot of erroneous blogger reports.  As for us, we're just doing what we can to try and make (and preserve) the user experience we envision.  You can disagree with us, but our motives are pure. 

By the way, what have you done that's so great?  Do you create anything, or just criticize others work and belittle their motivations?
Under Steve Jobs, Apple even went as far as to try to cripple T-Mobile users' iPhones, via malicious updates.

iPhone chained
Apple claimed chaining the iPhone to AT&T was done out of "pure" motives to protect the user.
[Image Source: The Huffington Post]

But the LoC yet again dealt the network locking proponents another blow.  While it made most forms of jailbreaking smartphones without permission illegal (addressing the terrorism/crime criticism), it explicitly made unlocking legal in a narrowly defined rule.  Much to Apple's chagrin, that rule stated:

Computer programs that enable wireless telephone handsets to execute software applications, where circumvention is accomplished for the sole purpose of enabling interoperability of such applications, when they have been lawfully obtained, with computer programs on the telephone handset. 

Apple cried foul, but its cries fell on deaf ears.  That rule put legal pressure on OEMs and carriers alike, as they stood a stronger chance of losing civil lawsuits if they continued to ban unlocking.
Following that ruling, on Jan. 2011 Apple ended exclusivity with AT&T, launching the iPhone on Verizon Communications, Inc. (VZ).  The move weakened the benefits of unlocking for both AT&T and Verizon, but Apple continued to lock its devices as a concession to carriers until early 2012 when new CEO Timothy Cook began to pressure carriers to offer unlocking support.  In April 2012, AT&T finally agreed to unlock its customers devices, including iPhones.
XI. Not so Fast -- the Unlock Gets Banned
In 2012 the LoC made a surprising reversal, ruling that unlocking no longer needed an exemption, thanks to the availability of unlocks from all major carriers.  This was problematic in two ways.  First -- it was the unlocking exemption that had put the pressure on carriers to offer such options in the first place.  Second, there were widespread reports that AT&T was sluggish and resistant to unlocking users devices (particularly iPhones).
It wrote:

Computer programs, in the form of firmware or software, that enable a wireless telephone handset originally acquired from the operator of a wireless telecommunications network or retailer no later than ninety days after the effective date of this exemption to connect to a different wireless telecommunications network, if the operator of the wireless communications network to which the handset is locked has failed to unlock it within a reasonable period of time following a request by the owner of the wireless telephone handset, and when circumvention is initiated by the owner, an individual consumer, who is also the owner of the copy of the computer program in such wireless telephone handset, solely in order to connect to a different wireless telecommunications network, and such access to the network is authorized by the operator of the network.

In other words, the exemption kept unlocking tools legal -- but only for devices that were purchased during the last exemption period.  Tools applied to new devices were illegal, and those who wrote them could face criminal charges.
The maximum allowable punishment for so-called "willful circumvention" for profit (e.g. iPhone unlockers who sell their unlocking software) is $500K USD and 5 years in prison for the first offense, and $1M USD and 10 years in prison for subsequent offenses [see: 17 USC § 1204 - Criminal offenses and penalties].
Not-for-profit circumvention tools generally falls under 17 USC § 1203.  The good news is that there's no prison time for that; the bad news is that the court decides an arbitrary "actual damages" estimate of how much the circumvention "hurt" the plaintiff's business.  That means that in theory Apple could sue jailbreakers/unlockers and claim hundreds of thousands, if not millions in damages, which the defendants could be required to pay, even if they didn't make a single dollar off their tools.
The decision left users few options in some cases.  For example, say you moved for work and then discovered your current carrier's support was poor.  Even if you were willing to pay an early termination fee, there was often no legal option to transfer your current device to a new network.
The rule was also problematic as while all four top postpaid carriers in the U.S. supported some form of unlocking, you had a certain number of days after the purchase to unlock, and the amount days varied greatly by carrier.
Joan Marsh, AT&T's regulatory vice president in 2013 wrote:

As we make clear on our website, if we have the unlock code or can reasonably get it from the manufacturer, AT&T currently will unlock a device for any customer whose account has been active for at least 60 days; whose account is in good standing and has no unpaid balance; and who has fulfilled his or her service agreement commitment.

But some users complained AT&T wasn't making good on that promise.  Similar complaints were leveled against other carriers who typically allowed unlocking within a certain number of days of signing up for a contract (T-Mobile: 40 days, Verizon: 60 days (2 months), and Sprint Corp. (S): 90 days).
While T-Mobile's switch to contract-free postpaid and unlocked, unsubsidized smartphones has mitigated some of the fallout of the 2012 termination of the unlocking exemption, the lucrative U.S. smartphone market has been plagued with uncertainty over the issue.
XII. DMCA and the Lack of Scienter: When Common Sense Takes a Holiday
Past attempts to unroll the DMCA or counter it with strong legislated fair used exemptions arose at time to time in the last decade, but were shot down.  Perhaps most humorously titled was the Digital Media Consumers' Rights Act (DMCRA) (H.R. 1201).  Introduced in the House in early 2005 by Rep. Boucher, it never even made it to the floor.
So today the worst fears have been realized; the LoC has dropped a common sense exemption and a key U.S. digital market has been cast into chaos as a result.  The cracks in the DMCA are now more apparent than ever.
The critical problem with the unlocking ban -- like similar anti-consumer prohibitions from the DMCA -- can be summed up simply as: lack of scienter.  Scienter is a key concept in legal/governance philosophy that refers to whether it's reasonably clear than an action is "wrong".  Lawmakers ostensibly should strive to only criminalize actions where there was a clear sense of scienter -- wrongness -- actions where common sense or prior knowledge would clearly tell you what you're doing was illegal.
Many parts of the DMCA crucially fail this test, as they ban the consumer from making use of products they legally own and from protecting themselves from abusive practices like expensive replacement policies on optical media or carrier network restrictions.  Consumers who legally purchase goods would likely naively guess that such rights are protected.  And that's a testament to the invalidity -- from a far deeper legal perspective -- of the DMCA.  Simply put, the bill defies common sense.
President Obama has called upon both parties to set aside their supposed differences and pass a bill allowing unlocking.  Congress has responded -- but has not finished the job.  The fact that two new bills aimed at legalizing unlocking sit before Congress is a testament of the need for a fix.  And yet the fix isn't here yet as a familiar situation arises.

Unlock me
Unlocking makes common sense, but common sense and the law don't always get along in the U.S.
[Image Source: iStock Photo]

The responsibility of fixing the DMCA has been passed down to a new bunch of Congressmen and Congresswomen, as many of the Senators and Representatives involved with the passage or criticism of the original DMCA are no longer in office.  But those who are drafting the two bills have arrived at a point similar to the original DMCA -- they have two bills, but there's one crucial difference.
The version of the bill from the Democratic-controlled Senate states (S.517) states:

Circumvention of a technological measure that restricts wireless telephone handsets or other wireless devices from connecting to a wireless telecommunications network... may be initiated by the owner of any such handset or other device, by another person at the direction of the owner, or by a provider of a commercial mobile radio service or a commercial mobile data service at the direction of such owner or other person, solely in order to enable such owner or a family member of such owner to connect to a wireless telecommunications network, when such connection is authorized by the operator of such network.

The bill is sponsored by Senator Patrick Joseph Leahy (D-Verm.).  But his bill's authorization of commercial scale unlocking has been a sticking point.  

XIII. Congress is Stuck Once More

The Republican-controlled House's version (H.R. 1123) -- sponsored by Rep. Robert William "Bob" Goodlatte's (R-Virginia, 6th District) -- has extra language banning such "bulk" unlocking.  It states:

Nothing in this subsection shall be construed to permit the unlocking of wireless handsets or other wireless devices, for the purpose of bulk resale, or to authorize the Librarian of Congress to authorize circumvention for such purpose under this Act, title 17, United States Code, or any other provision of law.

The language was added at the last minute by the bill's sponsor (Rep. Goodlatte) as a concession to postpaid carriers.
TracFone and others are outraged by the last second addition in the House version of the bill banning them from bulk unlocking.

TracFone Wireless, Inc. -- a subsidiary of Mexico's América Móvil SAB de CV (AMX) -- blasted the prohibition on bulk unlocking, which would hurt its business.  Public Knowledge agrees.  It writes:

The amended version fails to address the flawed law at the root of the unlocking problem.  A bill designed to scale back overreaching copyright laws should not also endorse an overreach of copyright law.

The Electronic Frontier Foundation (EFF) echoes:

Congress is okay with using copyright as an excuse to inhibit certain business models, even if the business isn't actually infringing anyone's copyright/

Public Knowledge, the EFF, and other petitioners have thrown their weight behind the U.S. Senate version.  It's unclear who will prevail.  But one thing's for sure -- the lack of compromise is leaving consumers hanging.

Pressure is on Congress to make a compromise.  [Image Source: U.S. Congress]

For Rep. Boucher and Rep. Klug -- both of whom have left their seats in the U.S. House since the original DMCA passage -- this surely sounds all too familiar.  They -- and the rest of Americans -- can only hope that Congress opts for a compromise to help America get out of its unlocking mess.  The clock is ticking and time is running short.  Both sides must find a way to compromise.
After all, their predecessors found it in them to make such a compromise in that hot July of 1998 to create this mess, putting the original ban to be put into place.  History is repeating itself; hopefully this time Congress has learned something.

“We do believe we have a moral responsibility to keep porn off the iPhone.” -- Steve Jobs

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